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Occupancy by Buyers' Friend During Interim Occupancy of New Condo Was Not a Breach of APS

Is a non-paying occupant considered a "tenant"? This was the issue in a recent case involving buyers who agreed to purchase a newly constructed residential condominium unit. They paid the seller the required deposits, together with almost a year's worth of monthly occupancy fees, all totaling about $93,500. They took pre-closing possession under an interim occupancy agreement, which included provisions to accommodate the seller's access to the unit to address deficiencies.

The buyers did not occupy the unit right away; instead, they allowed a struggling friend to live in the unit for a few months, rent-free. There was no lease. The seller was aware that someone was living in the unit and knew it was not the buyers.

Over the next several months, friction increased between the seller and buyers over various deficiencies and repairs to be remedied by the seller. Then, just weeks before closing, the seller alleged for the first time that the buyers had breached the agreement, by allowing their friend to stay in the unit without the seller's consent. At that point, the buyers' friend had vacated the unit over four months earlier and the seller had known about him for about nine months in total.

The seller nonetheless purported to terminate the agreement on this basis and unilaterally retained the buyers' $93,500 as liquidated damages. The seller then took steps to re-sell the unit to family members. The buyers applied to the court for relief from forfeiture of their money, and for specific performance compelling completion of the original deal.

The court granted the buyers' application. In reviewing the wording of contract, the court agreed it prohibited the lease of the unit without the seller's written consent. But on proper interpretation, the clause was mainly aimed at two things: (1) ensuring the seller could address deficiencies during the occupancy period, without difficulties in gaining access to the unit; and (2) avoiding disputes over damage caused by third parties.

The seller chose to use the word “lease” in the agreement, which by common definition involves a written contract for a fixed period. There was no “lease” here, nor any “tenant” as that legal term is understood. The buyers had merely allowed their friend to stay in the unit, without receiving rent or other benefit from him. This was not a breach of the agreement, since the agreement contained nothing to prevent buyers with occupancy rights from allowing friends or guests to stay for free.

The court observed that — despite being immediately aware of the friend's occupancy — the seller had waited nine months to assert its putative right to terminate, meanwhile continuing to accept the buyers' monthly occupancy fees. This delay alone amounted to a waiver of the seller's right to end the agreement.

The seller's attempt to terminate was a thin excuse to seize the buyers' payments, and to achieve its sole aim of securing an economic advantage by avoiding the costs of repairing the disputed deficiencies. It was a grossly disproportionate response to an alleged breach — one the buyers had cured months earlier by asking their friend to leave.

The court ordered relief from forfeiture and granted specific performance after concluding that damages would be an inadequate remedy. Admittedly, the unit could not be considered "unique" in terms of its layout and amenities since there were many similar units not only in the building itself, but also in the city. However, the court reasoned that when the buyers had agreed to purchase the unit nearly five years earlier, they did so on very advantageous terms. The unit had also increased significantly in value since then.

In this respect — and as measured against the test of whether damages were an adequate alternative — the unit could be considered "unique" because a substitute was not readily available. Plus, the buyers' money had been tied up with the seller for the years leading to trial, so it was not available to them for buying a different unit while the real estate market continued to rise.

An order for specific performance would better achieve timely and fulsome justice in the case. It was the only remedy that would put the buyers in the position they would have been in, had the contract been performed.

The court nullified the seller's re-sale to family members and ordered the original sale to the buyers to go through, with their deposit funds to be credited toward the purchase price. See Lucas et al. v. 1858793 Ontario Inc. o/a Howard Park et al., 2020 ONSC 964.